Op Ed: The Role of Trading Bots in the Cryptocurrency Market

Similar to Wall Street and stock trading, bitcoin and cryptocurrency trading is a form of income for many. Due to the nature of the medium, however, many bitcoin traders do it as a side project, focusing their energy on a main job or alternate work.

But to generate passive — or active — income in these industries, you must be paying attention to current market trends and activity. Market shifts happen so fast, you can lose a lot of money if you don’t act soon enough, or don’t have time to trade when it’s opportune. That’s exactly why chat and trading bots have exploded on the scene.

Bots are automated systems that share information, answer queries and even perform actions — like trading bitcoin for money and vice versa. For example, Haasbot, a popular trading bot among cryptocurrency enthusiasts, will do most of the work for its users. It watches prices and exchange rates, handles trading and more. They are so efficient, it’s possible you’ve interacted with a bot and never even knew it.

Many of these tools require a subscription or monthly fee to continue using them. A handful allow you to pay in bitcoin.

Bots Are a Unique Form of AI

Bots use machine learning and data to improve themselves over time. As people interact with them and use them for more tasks, the bots learn, so to speak. Extensive analytics and software that is capable of creating trend-based algorithms make this possible. In time, they can even learn to invent their own languages to communicate with one another more efficiently.

In many ways, you can draw parallels between the development that chatbots go through to that of human beings. Regarding potential uses, capabilities and size, they start small and then grow into something more mature. Take, for instance, modern AI systems like Google Assistant, Apple's Siri, Microsoft's Cortana or Amazon's Alexa. Sure, those platforms are all consumer-based, but they started out a lot less accurate and useful and grew gradually into what they are today.

You can now ask Alexa queries, have her read books and news snippets, get weather updates and even go shopping all via voice commands. Want to play some tunes from your music library or stream from Spotify? She can do that, too, and more.

From the moment you place an AI assistant (like Alexa or Siri) in your home, you can tell how advanced and useful it is. The same applies to chatbots, which are designed to do many things through the power of one-to-one messaging. They wouldn't exist without modern AI technologies, nor would they be able to interact with you fully as they do now.

How Are Chatbots Influencing the Cryptocurrency Scene?

In the past, if you didn’t have the time, knowledge or skill set to invest in part- or full-time trading, you couldn’t participate. Sure, like stock trading, you can earn money, but it will never be substantial unless you’re present and active on a regular basis.

Chatbots allow you to be involved in the cryptocurrency marketplace while focusing on other responsibilities. But not just in an omnipresent way, they’re clued in to industry trends, know the necessary data and patterns and exactly when to trade — and when not to. Technically, you could say it’s cheating a little.

Of course, there are bots that make the process easier and provide up-to-date information during a query too. These bots are for convenience and to help traders stay in the loop. Think of them as sort of an RSS or news feed for cryptocurrency updates.

Essentially, bots can provide all the necessary resources to be a successful and active trader. But how is this influencing the industry and the market?

The answer is quite simple. It’s making the entire space more competitive, and it’s also helping the cryptocurrency industry boom. Arbitrage trading — the act of buying and selling commodities in one market and selling them for higher in another — is now possible with chatbots and automated systems. Another possibility is called market making, which involves generating profits based on long-term activity via sales and orders.

As chatbots and similar automated systems are opening up new avenues and opportunities for traders, they, in turn, are helping the industry grow and become more substantial. In the first quarter of 2017, the aggregate cryptocurrency market cap reached an all-time high of $25 billion for every top 10 asset rallies. Blockchain, the backbone of cryptocurrency, and the currency are growing — and fast.

What Bots Are Available?

There are too many bots and automated systems to list fully here, but we can explore some of the most popular systems available to traders.

Haasbot — We already discussed this bot, which costs about 0.12 BTC and 0.32 BTC every three months.

Tradewave — While not a conventional bot, this platform allows traders to come up with their own strategies and algorithms. You create “strategies” which are then used to control and influence the systems decisions and actions. You can download crowdsource strategies, too, if you don’t want to make your own. An entry-level subscription is $14 a month.

Zenbot — This open-source system is a full-scale, lightweight trading bot. It can handle multiple assets at once, and high-frequency trading, as well. This is important because it’s rare in the bot market. Plus, the open-source nature allows anyone to modify and update the code.

Cryptotrader — This automated system takes advantage of cloud computing. You don’t have to install any software or programs, and it allows anyone to get involved. It’s relatively young, however, so it doesn’t have the same track record as the other bots mentioned here.

Gekko — Yet another open-source platform, this one can be found on GitHub. It’s quite basic and cannot handle high-frequency trading or arbitrage trading, but that’s okay. It’s meant to be a minimal solution for those interested in cutting through the noise.

BTCRobot — Considered to be one of the original bots on the scene, BTC Robot is hit-or-miss for many. It does all basic trading and everything you’d expect it to, and there is a 60-day full refund policy if you want to try it out.

But There Are Risks

While there are many benefits and rewards to speak of, there are risks as well and it’s important to keep them in mind for many reasons.

For starters, bots are more of a tool than a guaranteed solution. You'd be forgiven for thinking otherwise, especially since they simplify the entire trading process through automation. But they don't help you choose trades. That is something you, as an experienced professional, will have to do on your own. This creates risk for error because, ultimately, you're the one deciding what trades and transactions the bot will focus on. Choose the wrong ones, and you will lose money.

Bots are extremely useful for taking advantage of market inefficiencies, a perk that many traders will take advantage of. Over time there will be a massive influx of traders using bots in this way, which will contribute to inefficiencies slowly disappearing. When that happens, no one will be able to claim an advantage, at least not in the same ways.

Finally, bots are generally designed to do something specific or carry out a specific set of instructions. Like most industry-exclusive tools, they require working knowledge not just of the process in question, but the market too. To operate heavy machinery, for instance, you get specialized training and learn to use the equipment for varying tasks, all of which are often within the same industry or market. By nature, tools are specialized, and cryptocurrency trading bots are no different.

In short, this means that not everyone can take advantage of or profit from this technology, even if it's marketed in that way. Remember you're still choosing the parameters of trades, so you need a working knowledge of the industry. You also need to be able to understand cryptocurrency values compared to real-world values. There's a lot to manage, and it's not something that everyone can succeed at without the proper training and knowledge, even if they're using a bot.

Are Bots Necessary for Successful Trading?

While bots do help automate the process and make it easier and faster-paced, that doesn’t change the fact that you need working knowledge of cryptocurrency and the market. As with stock trading, you cannot hope to blindly jump in and make a huge profit. Of course, beginner’s luck is possible, but luck will only carry you so far.

Before you consider working with these platforms and deploying a bot of your own, you’ll want to make sure you understand the full breadth of the industry and how the market operates.

This is a guest post by Kayla Matthews. Views expressed are her own and do not necessarily reflect those of Bitcoin Magazine. Trading and investing in digital assets and cryptocurrencies is highly speculative and comes with many risks. This opinion piece is for informational purposes and should not be considered investment advice. Statements and financial information on Bitcoin Magazine and BTC Media related sites do not necessarily reflect the opinion of BTC Media.